PPF falls under the ‘EEE’ category, which means that PPF contribution, interest earned on PPF and PPF maturity proceeds are exempted from tax. One can invest up to Rs 1.50 lakh in an EPF account per annum.
It may be noted that the government fixes the interest rate on PPF every quarter. For the current January-March quarter, PPF interest rate has been fixed at 8%.
A PPF account matures in 15 years but one can extend the maturity by a block of 5 years for multiple time by giving an application.
Meanwhile, in PPF, loan and partial withdrawal benefit are also available. PPF account holders can avail a loan between the third and sixth financial year of opening the PPF account. The maximum amount of loan one can avail on his PPF account is of 25 per cent of the total amount accumulated in the account by the end of the second fiscal year preceding the year in which the loan was applied for.
After the completion of the sixth financial year or from the beginning of the seventh financial year, the PPF account holder becomes tax-free partial withdrawals. The maximum partial withdrawal amount is capped at 50 per cent of the account balance at the end of the fourth financial year preceding the year in which withdrawal is made or 50 per cent of the account balance at the end of the previous financial year, whichever is lower.
With the above benefits, it is worth investing in PPF for the long term, say financial planners. One can also become a crorepati by investing in PPF regularly. If you put Rs 1.5 lakh every year in PFF at the beginning of a financial year, then one can accumulate a corpus of Rs 1.08 crore by the end of the 24th year assuming that 8 per cent interest remain constant throughout the entire 24 years tenure. Here is an illustration that shows one can become a crorepati in 24 years by investing in PPF.